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The lawsuit, filed in the U.S. District Court for the Eastern District of Pennsylvania, seeks injunctive relief and monetary disgorgement against the companies, and alleges that Endo—which has U.S. offices in Pennsylvania—and the other companies violated antitrust laws by entering into pay-for-delay settlements over the shingles treatment Lidoderm (lidocaine) and the painkiller Opana ER (oxymorphone hydrochloride extended-release).

Pay-for-delay or reverse payment settlements are patent litigation settlements that generally involve payments from branded drug companies to generic drug companies in exchange for keeping the generic off the market. The Federal Trade Commission announced the filing on March 31.

No Authorized Generic

The FTC said that this suit marks the first time that it has specifically targeted a settlement involving an agreement not to market an authorized generic as a form of reverse payment. Authorized generics are generic drugs sold under a license from the patent holder.

Patent litigation settlements between brand-name and generic manufacturers often include an agreement by a branded drugmaker not to launch an authorized generic version of its brand-name drug during a 180-day period of generic exclusivity. Such exclusivity is granted to the first generic applicant to seek the Food and Drug Administration's approval for its generic product and challenge the brand-name company's patent under the Hatch-Waxman Act.

Such agreements not to launch authorized generics are informally referred to as “no-AG”
agreements.

“Settlements between drug firms that include ‘no-AG commitments’ harm consumers twice—first by delaying the entry of generic drugs and then by preventing additional generic competition in the market following generic entry,” FTC Chairwoman Edith Ramirez said in a March 31 statement. “This lawsuit reflects the FTC’s commitment to stopping pay-for-delay agreements that inflate the prices of prescription drugs and harm competition, regardless of the form they take.”

Attorney's View

James M. Burns, an antitrust expert with Baker Donelson's Washington office told Bloomberg BNA March 31 that the FTC's decision to challenge a “no-AG agreement”
isn't surprising. “What is surprising, given the FTC's views on the issue, is that it has not done so previously,” he said in an e-mail.

The FTC said its suit alleges that Endo violated federal antitrust laws by entering into settlements with Impax and Watson, the first generic companies to submit abbreviated new drug applications to the FDA to make and sell generic versions of the drugs, that delayed substantial generic competition to the branded drugs and allowed Endo to preserve its monopolies in those lucrative drug markets. Watson is now part of Allergan Inc.

One Commissioner Dissents

Although Ohlhausen said she had “reason to believe that the Defendants violated Section 5 of the FTC Act by entering into pay for delay agreements,”
she opposed seeking disgorgement from the defendants.

Burns said that Ohlhausen's dissent “may simply be an expression of her continued unhappiness regarding the Commission's 2012 decision to withdraw its guidance on the circumstances in which disgorgement will be sought by the Commission.”

“In prior matters she has, on occasion, expressly stated that the particular matter was nevertheless an appropriate one for disgorgement,” Burns said, noting that no such statement appears in her dissent in the Endo matter.

In her March 31 statement, she said “[t]he better course would be to pursue this matter administratively.”

Applying Actavis Standard

Pursuing administrative action, Ohlhausen said, “would allow the Commission to render a thoughtful decision applying the Actavis standard, providing much-needed guidance to courts and firms around the country in connection with this vote.”

In FTC v. Actavis, the Supreme Court held in 2013 that large and unjustified payments made by the brand-name drug patent holder to the alleged generic patent infringer to settle litigation will subject the settlement to antitrust scrutiny under the rule of reason.

But the Actavis opinion left open many questions, including whether the reverse payment must be in cash, the degree of importance that should be attached to the size of the payment and whether the strength of the underlying patent is relevant to the antitrust analysis.

Indeed, Burns said that the new case only highlights the many questions that Actavis didn't address. These are questions that likely will require the Supreme Court to revisit the issue, he said. In addition to the “no-AG”
issue, “the FTC's allegations in the case will require the Court to assess whether the ‘side payments' made by Endo were legitimate marketing arrangements or whether they were disguised ‘pay for delay' payments under Actavis,” he said.

“This issue may present an equally daunting challenge for the court, and an open-ended avenue for future uncertainty depending upon how the Court handles the issue,” he said.

Did Pacts Preserve Monopolies?

In the case of Opana ER, the FTC's suit alleges that, in 2010, Endo and Impax entered into an illegal pact over Opana ER. Under that pact, Endo agreed not to market an authorized generic version of Opana ER that would compete with Impax's product until January 2013. According to the FTC, under the settlement, Endo paid Impax more than $112 million, including a development and co-promotion agreement worth $10 million.

The FTC said that Endo was able to maintain its monopoly in the Opana ER market after Impax entered the market with its generic by switching patients to a new formulation of Opana ER. In 2010, Opana ER sales in the U.S. exceeded
$250 million, the FTC said.

A no-AG agreement also was a feature of Endo's 2012 settlement with Watson over generic Lidoderm, the FTC said. According to the FTC, U.S. sales of Lidoderm in 2012 were nearly $1 billion.

Teikoku Seiyaku Co. Ltd. and Teikoku Pharma USA were also partners to the 2012 agreement with Watson over Lidoderm. As part of that settlement, Endo and the Teikoku entities agreed not to introduce an authorized generic version of Lidoderm that would compete with Watson's generic until September 2013.

That settlement agreement terminated Endo's patent litigation lawsuit over generic Lidoderm in exchange for providing $96 million worth of brand-name Lidoderm patches to Watson. It also gave Watson a period of exclusivity to market its generic version of Lidoderm patches without competition from other generics. This enabled Watson to make “hundreds of millions of dollars more in generic Lidoderm sales” than it otherwise would have, the FTC said.

According to the FTC, the agreement with Watson allowed Endo to perpetuate its monopoly in the Lidoderm market.

Endo Responds

In a March 31 statement provided to Bloomberg BNA, Endo said it's “disappointed by the FTC’s decision to initiate litigation over intellectual property settlements Endo reached in 2010 and 2012 with Impax Laboratories, Inc. and Watson Pharmaceuticals Inc. (now Allergan plc), respectively.”

Endo said it “believes that both settlements were supportive of a competitive environment for a number of reasons, including that they permitted the entry of generic competition to Endo’s branded pharmaceutical products well before the relevant patents expired and, therefore, benefitted consumers through increased availability and lower pricing. Because the settlements complied with all applicable laws, we believe the FTC’s case is without merit and Endo intends to vigorously defend itself in the litigation.”

FTC Settles With Teikoku

In connection with the complaint, the FTC filed a stipulated order for permanent injunction against the Teikoku entities, which settled the antitrust charges against those defendants.

Under the stipulated order, the Teikoku entities are banned from entering into certain kinds of drug patent litigation settlements—such as those including no-AG commitments—for the next 20 years. “The agreed-upon order preserves Teikoku’s ability to enter other types of settlement agreements in which the value transferred is unlikely to present antitrust concerns, such as those providing payment for saved future litigation expenses,” the FTC's statement said.

The commission's vote to accept the Teikoku settlement was unanimous.

Private Actions Already Brewing

Both the Opana ER and the Lidoderm settlement agreements are the subject of several private antitrust actions alleging that the settlements were anticompetitive ( .

The FDA approved Lidoderm in 1999 to treat the pain associated with post-herpetic neuralgia, a chronic condition resulting from nerve damage caused by shingles.

Opana ER is an extended-release opioid used to relieve moderate to severe pain. The FDA approved it in 2006. In 2012, Endo withdrew the original formula of Opana ER from sale after the FDA approved a new reformulated version of Opana ER in 2011. The reformulated version was designed to be more difficult to abuse and misuse.

The case is assigned to Judge Paul S. Diamond.

To contact the reporter on this story: Dana A. Elfin in Washington at delfin@bna.com

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